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Spring Budget: An Update on R&D Tax Credit Reform and Research and Development Investment

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As very much suspected, much of Rishi Sunak’s highly anticipated Spring budget announcement was centered, and correctly so, around the security of our domestic economy and tackling the rapidly rising costs of living and transport, and this has been supported by a planned increase in the NIC threshold and a reduction in income tax in the coming years.

Update on R&D tax credits and innovation

As in the 2021 Autumn budget, the Chancellor reiterated the fact that the UK is well behind in its attempt to remain globally competitive in science and innovation, and the money that businesses are currently spending on R&D (as a percentage of GDP) is less than half of the OECD average despite the UK government spending heavily on tax reliefs.

Studies have shown that the current system provides poor value and is not boosting growth in the way that it is intended. As a reaction to this, the Chancellor announced that research & development tax credits will be reformed in the Autumn in an attempt to make them more effective and far better value for money.

Matthew Jones, managing director at LimestoneGrey commented:

It may be the Government’s intention to increase the generosity surrounding the relief, particularly on the back of last week’s announcement that an R&D budget of almost £40 billion has been set aside for 2022-2025.  We already know that the relief has been extended to include additional costs and whilst Rishi Sunak has highlighted the requirement for fundamental changes to the scheme, a lot remains speculation. We will all wait in anticipation for the Autumn when the planned updates will become clear.

Largest ever R&D budget commitment announced for 2022-2025

Business Secretary Kwasi Kwarteng has confirmed a £39.8 billion R&D budget for 2022-2025 in a bid to deliver the Government’s ambitious innovation strategy of increasing total R&D investment to 2.4% of GDP by 2027.

This investment will aid the Government in its plans of cementing the UK’s position as an innovation nation and will support priorities such as tackling climate change and enabling investment in new technologies such as AI and clean tech. It will also contribute to commitments made in the levelling up white paper, with a planned increase of public investment in R&D outside the greater South-East area.

Matthew Jones commented further:

The Government have made no secret in the fact that they believe the UK has trailed behind other nations in R&D spending. This largest ever R&D budget commitment, combined with the R&D tax credit programme, will look at changing this by providing businesses with the confidence to invest in research and development after an extremely difficult two years. Research shows that every £1 of public expenditure in R&D will eventually leverage an average of £2 of additional private investment.

For advice on how these R&D announcements could affect your business, contact the team at LimestoneGrey.